By Jennifer Rossettini, CFP®
Many of our readers have two things in common: (1) they are not fans of “traditional” long-term care insurance, and (2) they are not fans of being required to take distributions from their IRA’s when they reach a certain age. If you find yourself nodding your head and saying, “Me too!,” I have some good news for you. With the right approach, you can take those Required Minimum Distributions (RMD’s) that you do not need and repurpose them to pay for “non-traditional” or “hybrid” long-term care insurance benefits.
When thinking about long-term care insurance, most people think of what is now considered a “traditional” long-term care policy. These are the policies that you pay a premium for and if you need coverage it is there, but if you don’t need coverage, you lose the premiums paid. Traditional policies are much like auto or home-owners’ policies – you pay for them with the hope that nothing terrible happens to your home or car, and you pay for them regardless of the “use it or lose it” nature of them. Unfortunately, even though the chances of needing long-term care are greater than, knock-on-wood, getting into an accident, very few people choose to insure against this risk.
Why is this the case? Well, for one thing, it is thought to be expensive. For another, it has the reputation for hefty premium increases. And, as it turns out, rightfully so. It was recently reported in The Virginian-Pilot that an estimated tens of thousands of Virginians will soon be hit with a double- or triple-digit percentage increase in premiums. Insurers have asked the State Corporation Commission to approve these rate hikes, because they have spent over a quarter of a century incorrectly estimating how long people stay in nursing homes and how many people would drop their policies. “Insurers kept initial premiums low and aggressively marketed policies, expecting many buyers to drop coverage when prices went up.” However, more people kept the policies than the insurance companies counted on, thereby causing the payout on claims to be much higher than expected.
Alternatives to traditional long-term care insurance come in the form of “hybrid” policies. These hybrid policies give the policy owner access to the death benefit, or a multiple of the death benefit, if long-term care services are needed. If long-term care services are not needed, or if not all of the death benefit is used up to pay for long-term care expenditures, the remaining death benefit is paid out to the designated beneficiaries upon the death of the policy owner.
An example of such a hybrid policy is a product offered by State Life/OneAmerica. It is a Whole Life life insurance policy with a Continuation of Benefits (COB) Rider. You make a one-time deposit into a life insurance contract with the COB rider and receive a death benefit for your heirs as well as a lifetime long-term care benefit.
To use an example, let’s assume that a male, aged 70, and a female, aged 71, are looking for a way to leverage a portion of their savings to fund long-term care expenses. They also do not need their RMD’s to support their lifestyle. Her IRA, which is valued at $119,000, has an RMD of $7,800. His IRA will have an expected RMD in the first year of $3,300. They could roll over her $119,000 IRA into the base policy and use the annual RMD’s from his IRA, net of taxes, to pay for the COB Rider. In exchange, they will receive lifetime long-term care benefits equal to $62,300 per year for each of them or $124,600 for both of them. They are able to repurpose the $11,000 annual RMD’s that they didn’t need into something that they could very well need in the future. But, even if they do not use the long-term care insurance, their heirs will receive a death benefit.
If you are interested in exploring this and other types of hybrid long-term care policies, the professionals of the Hook Law Center, P.C. can help you analyze your situation and introduce you to the right partner to meet your needs.
 Jamie P. Hopkins, Rewirement: Rewiring the Way you Think About Retirement,” p. 69 (2018).
Ask Kit Kat: Elephant Sense of Smell
Hook Law Center: Kit Kat, what can you tell us about elephants and their capacity for smell?
Kit Kat: Well, as you might suspect, elephants have large, long noses in their trunk. So, it’s not much of a stretch to imagine that their capacity for smell would be greater than some smaller creatures in the animal kingdom, including humans. Why this is important to know is that it may have implications for keeping elephants safe from predators when they wander beyond protected areas, tempted by smells that we may not even be aware of.
To test ideas about whether or not elephants possess greater olfactory capabilities than most animals, Dr. Joshua Plotnik of Hunter College in New York City devised some experiments. Six Asian elephants, which were blindfolded, were presented with plastic buckets with varying amounts of sunflower seeds. The buckets had lids, but also had holes, so the waft of odor of the contents could escape. “Remarkably, when we put two different quantities in the buckets, the elephants consistently chose the quantity that had more over less,” according to Dr. Plotnik. For example, when there were large differences between the amount of seeds in a particular container, say 30 v. 180 seeds, the elephants were very accurate in picking the larger bucket. When the quantity varied slightly, say 150 v. 180, their accuracy slipped to about 50%. This proved Dr. Plotnik’s hypothesis that elephants have a powerful sense of smell which is not dependent on sight.
Why is this experiment important? Elephants in Thailand and Africa have spilled over from their protected areas into humans’ farmlands. Inhabitants love the elephants, but they don’t want their crops destroyed. It’s becoming quite a problem. Perhaps if there is more understanding what is attracting the elephants, better solutions can be devised to keep them in the areas which have been designated for them. It’s all about co-existing without expense to any group. (Veronique Greenwood, “Elephants May Sniff Out Quantities With Their Noses,” The New York Times (Trilobites), June 4, 2019)